SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 1-5560
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Alpha Industries, Inc.
(Exact name of registrant as specified in its charter)
Delaware 04-2302115
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
20 Sylvan Road, Woburn, Massachusetts 01801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 935-5150
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
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Common Stock, $.25 par value American Stock Exchange
Rights to purchase Common Stock American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant at May 31, 1996 was approximately $90,109,000.
The number of shares of Common Stock outstanding at May 31, 1996 was
9,719,216.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement, to be filed within 120 days of
the end of the Registrant's fiscal year are incorporated by reference into Part
III of this Report.
The Exhibit Index is located on page 34.
Page 1 of 52 pages.
1
PART I
Item 1 Business
Products
The Company categorizes its product lines and core technologies as follows:
. Radio Frequency (RF), Microwave and Millimeter Wave Monolithic Integrated
Circuits (MMICs)
. Ceramic Products
. Discrete Semiconductors
. Millimeter Wave Components and Subsystems
The chart below identifies the major markets currently served by each of the
Company's product lines. In addition, the Company's products serve other
wireless markets.
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MARKETS PRODUCTS
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MILLIMETER WAVE
DISCRETE COMPONENTS
CERAMIC SEMI- AND SUB-
MMICS PRODUCTS CONDUCTORS SYSTEMS
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Cellular
Personal Communications
Services(PCS) -------------------------------------------------
Handset * * * (1)
-------------------------------------------------
Base Station * * * *
-------------------------------------------------
Digital Radio Links * * * *
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Pagers * * (1)
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Global Positioning Systems(GPS) * * (1)
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Cordless Telephones * * (1)
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Wireless Cable TV * * * *
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Defense-Related Systems * * * *
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(1) These applications do not utilize millimeter wave components and subsystems.
RF, Microwave and Millimeter Wave MMICs. The Company designs and
manufactures RF, microwave and millimeter wave MMICs in Gallium Arsenide (GaAs)
that integrate numerous functions performed by discrete semiconductors. The
functions of the Company's GaAs MMICs include amplification, switching and
control and frequency conversion of signals in the radio transceiver portion of
wireless communications systems. In wireless voice and data applications, the
Company's GaAs MMICs are used in the handheld unit, base station transceivers
and point to point radio links between the base station and local wireline
network. The Company's millimeter wave MMICs connect transmissions between
base stations, including the local wireline PBX switching office. The Company
believes that this function is growing in importance, and that it will continue
to do so as a greater percentage of the higher frequency spectrum is allocated
to accommodate the increase in wireless communications traffic.
2
Ceramic Products. The Company's ceramic products play a critical role in the
signal selection, or filtering process, that is essential to processing
communications signals. The physical properties of ceramic materials are
suitable for power efficiency and miniaturization. The Company is a major
supplier of miniature ceramic antennas to manufacturers of GPS receivers,
particularly for compact handheld units which are gaining popularity. Ceramic
products are crucial in the frequency-determining portions of direct broadcast
satellite television (DBS TV) receivers, radar detectors and intrusion alarms.
They are also shrinking the size of cellular radio base station equipment.
Discrete Semiconductors. The Company fabricates discrete surface mount
semiconductors in both GaAs and silicon as stand alone components for
specialized applications which are not addressed efficiently by MMICs. Silicon
technology continues to be used for discrete semiconductors when circuit
integration is not possible or for certain applications for which the
properties of silicon material provide better performance. Discrete
semiconductors are used for amplification, switching and control and frequency
conversion in base stations, transmitters and receivers of cellular handsets.
Millimeter Wave Components and Subsystems. Millimeter wave applications
operate above the microwave frequency range, primarily between 20 Ghz and 300
Ghz. The Company has been an industry leader in the design and manufacture of
millimeter wave components and subsystems for military and defense related
applications. This experience established the Company's advanced millimeter
wave MMIC capability. It also provides the Company with technological and cost
advantages in commercial applications, such as personal communications services
and personal communications networks (PCS/PCN) and cellular telephone
infrastructure equipment. The Company manufactures MMIC based amplifiers,
transmitters and receivers, as well as single function components such as Gunn
oscillators, mixers, isolators and circulators for commercial applications,
including PCS/PCN radio equipment.
The principal customers for these products are equipment manufacturers for
commercial and defense microwave systems such as cellular telephones,
commercial telecommunications, direct broadcast satellites, and military radar,
missile, and electronic warfare.
The Company's operations are within a single segment of the electronics
industry: the development, production and sale of microwave materials, devices
and components.
Markets and Distribution
During fiscal 1996, approximately 76% of the Company's sales were to
manufacturers of commercial products, primarily in the wireless communications
markets and include components for products such as wireless telephones and
base stations in addition to motion detectors and sensors. The remaining 24%
of sales were for use in a wide variety of defense-related systems.
Export sales to non-affiliates for fiscal 1996, 1995 and 1994 were
$23,633,000, $16,855,000, and $16,471,000, respectively. This compares with
domestic sales for the same period of $66,081,000, $54,974,000, and
$47,337,000, respectively. The Company operates sales subsidiaries in the
United Kingdom and a ceramic manufacturing operation in France. During fiscal
1996, the Company closed its sales subsidiary in Germany and replaced it with
an independent sales representative and distributor. See Note 3 to the
Consolidated Financial Statements on page 22 for financial information about
the Company's foreign and domestic operations.
3
The Company's sales are made through 15 independent domestic sales
representatives and 21 independent international sales representatives, as well
as through its own sales force of 29 persons. Approximately 14% of the
Company's sales are made through its own direct sales force and 86% through
sales representatives.
Research and Development
Research and development efforts are undertaken by the Company both on a
Company or customer sponsored basis. For customer sponsored projects, the
customer may pay all or a portion of the expenses incurred. Some of the
customer sponsored contracts are reimbursed by the U.S. Government. The
Company's products and markets are subject to continued technological advances.
Recognizing this, the Company has maintained a high level of R&D activities to
remain competitive in certain areas and to be an industry leader in other areas.
R&D expenditures for the last three fiscal years are detailed below (in
thousands):
1996 1995 1994
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Company sponsored................... $ 9,148 $ 4,154 $ 3,429
Customer sponsored.................. 4,224 7,583 9,439
Other*.............................. - 695 919
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Total R & D Expenditures........ $13,372 $12,432 $13,787
======= ======= =======
*Non-reimbursed costs incurred by the Company on customer sponsored contracts.
- --------------------------------------------------------------------------------
Raw Materials
Raw materials for the Company's products and manufacturing processes are
generally available from several sources. It is the Company's policy not to
depend on a sole source of supply. However, there are limited situations where
the Company procures certain components and services for its products from
single or limited sources. The Company purchases these materials and services
on a purchase order basis, does not carry significant inventories and does not
have any long-term supply contracts with its source vendors. The inability of
the Company to obtain these materials in required quantities would result in
significant delays or reductions in product shipments, which would materially
and adversely affect the Company's operating results.
Working Capital
The business of the Company is not seasonal, and there are no special
practices with respect to working capital for the Company or the industry in
general. The Company provides a limited warranty on its products against
defects in material and workmanship. Payment terms are 30 days in the domestic
market and generally 60 days in foreign markets.
4
Contracts
During fiscal 1996, no one customer accounted for 10% or more of the
Company's total sales. All of the Company's sales to the United States
Government and prime contractors and subcontractors thereof are subject to
termination at the convenience of the Government, in which event the Company
would normally be reimbursed for costs incurred. While U.S. Government orders
are cancelled in this manner, Alpha has seldom experienced any material
terminations for convenience.
Competitive Conditions
The Company competes on the basis of price, performance, quality,
reliability, size, ability to meet delivery requirements and customer service
and support. The Company experiences intense competition worldwide from a
number of multinational companies that offer a variety of competitive products
and broader product lines, and which have substantially greater financial
resources and production, marketing, manufacturing, engineering and other
capabilities than the Company. The Company also faces competition from a number
of smaller companies. In addition, the Company's customers, particularly its
largest customers, may have or could acquire the capability to develop or
manufacture products competitive with those that have been or may be developed
or manufactured by the Company.
Patent and Trademarks
Alpha owns a small number of patents and has other patent applications under
preparation or pending. However, the Company believes that its technological
position depends primarily on the ability to develop new innovative products
through the technical competence of its engineering personnel.
Backlog
The Company's backlog of undelivered orders on March 31, 1996 was
approximately $36,500,000 compared with $30,200,000 on April 2, 1995. The
Company's policy is to record commercial orders on a quarterly basis consistent
with expected customer short-term requirements. Management believes all orders
in the Company's backlog to be firm. Approximately 90% of the March 31, 1996
backlog is anticipated to be shipped in fiscal 1997.
Environmental Regulations
In the Company's opinion, compliance with federal, state, and local
environmental protection regulations does not and will not have a material
effect on the capital expenditures, earnings, and competitive position of the
Company.
Executive Officers
The following table sets forth certain information with respect to the
executive officers of the Company at May 31, 1996.
Name Age Position
George S. Kariotis 73 Chairman of the Board of Directors
Martin J. Reid 54 Director, President and Chief Executive Officer
David J. Aldrich 39 Vice President, Chief Financial Officer and Treasurer
Thomas C. Leonard 61 Vice President
Paul E. Vincent 48 Controller
5
All officers serve until the next Board of Directors meeting following the
Annual Meeting of Stockholders scheduled for September 9, 1996, or until their
successors are elected and qualified. No officer was elected pursuant to any
arrangement or understanding.
George S. Kariotis was Chairman of the Board and Chief Executive Officer
from 1962 (when the Company was founded) until 1978, and, from 1974 to 1978, he
was also Treasurer of the Company. From 1979 to 1983, Mr. Kariotis was the
Secretary of Manpower Development and Economic Affairs for the Commonwealth of
Massachusetts. He was re-elected Chairman of the Board of the Company in 1983
and Chief Executive Officer in 1985. Mr. Kariotis resigned as Chief Executive
Officer in July 1986 while he campaigned for public office. He resumed his
position as Chief Executive Officer in November 1986, and served in that
capacity until 1991.
Martin J. Reid was a Vice President of the Company from 1975 to 1981, and
from 1981 to 1985, he was a Senior Vice President of the Company. Mr. Reid was
elected President, Chief Operating Officer and became a Director in 1985. He
was elected acting Chief Executive Officer in July 1986 while Mr. Kariotis
campaigned for public office, and relinquished that position and resumed his
position as Chief Operating Officer in November 1986 after Mr. Kariotis'
campaign. Mr. Reid was elected to the position of Chief Executive Officer in
1991.
David J. Aldrich joined the Company in 1995 as Vice President, Chief
Financial Officer and Treasurer. In May 1996 Mr. Aldrich was also appointed
General Manager of Alpha Microwave. From 1989 to 1995, Mr. Aldrich held several
positions at M/A-COM, Inc., including Manager Integrated Circuits Active
Products, Corporate Vice President Strategic Planning, Director of Finance and
Administration, and Director of Strategic Initiatives with the Microelectronics
Division. Prior to joining M/A-COM, Inc., Mr. Aldrich was Controller with Adams
Russell Electronics Company from 1984 to 1989 and a project leader for a NASA
satellite communications program with Space Communications Company (a Fairchild
Industries and Contel Inc. Partnership) from 1981 to 1983. Mr. Aldrich is a
director of CableMaxx, Inc., a wireless cable television service provider.
Thomas C. Leonard joined the Company in 1992 as General Manager of the
Components and Systems Division. He became the General Manager of Operations
for the Alpha Microwave Division effective January 1994 and was elected a Vice
President in 1994. Mr. Leonard has over 30 years experience in the microwave
industry, having held a series of general managerial and marketing positions at
M/A-COM, Inc., from 1972 to 1992 and prior to 1972 at Varian Associates and
Sylvania.
Paul E. Vincent has held his position as Controller since he joined the
Company in 1979.
Employees
As of March 31, 1996, the Company and its subsidiaries employed
approximately 990 persons, compared with 830 persons as of April 2, 1995.
6
Item 2 Properties
The following information describes the major facilities owned and leased by
the Company. The Company believes it has adequate production capacity in the
Woburn facility to meet the semiconductor and component business needs for the
next 12 to 18 months. The Company also believes that it has adequate production
capacity in the Maryland facilities to meet the ceramic products business needs
for the next 12 to 18 months. As described in Note 5 to the Consolidated
Financial Statements on pages 23 through 25, several properties secure debt of
the Company.
a. The Company owns a 158,000 square foot plant plus eight acres of land at
20 Sylvan Road, Woburn, Massachusetts. This plant is occupied by the
semiconductor and component manufacturing operations and corporate
headquarters.
b. The Company owns a 92,000 square foot facility in Adamstown, Maryland.
This plant is occupied by the Company's wholly owned subsidiary,
Trans-Tech, Inc., and is utilized as the Company's primary ceramic
products manufacturing facility.
c. The Company leases approximately a 33,000 square foot facility in
Frederick, Maryland. This plant is used by the Company's wholly owned
subsidiary, Trans-Tech, Inc., to manufacture ceramic filters.
d. The Company leases a 7,200 square foot facility in Marly, France. This
plant is occupied by the Company's wholly owned subsidiary, Trans-Tech
Europe SARL and is also utilized as a ceramic products manufacturing
facility.
e. The Company leases a 3,600 square foot facility in Milpitas, California.
This facility is occupied by Western Trans-Tech, a division of Trans-Tech,
Inc., and is also utilized as a ceramic products manufacturing facility.
Item 3 Legal Proceedings
The Company does not have any material pending legal proceedings other than
routine litigation incidental to its business.
The Company has been notified by federal and state environmental agencies of
its potential liability with respect to the following two sites: the Spectron,
Inc. Superfund site in Elkton, Maryland, and the Seaboard Chemical Corporation
site in Jamestown, North Carolina. In each case several hundred other companies
have also been notified about their potential liability regarding these sites.
The Company continues to deny that it has any responsibility with respect to
these sites other than as a de minimis party. Management is of the opinion that
-- -------
the outcome of the aforementioned environmental matters will not have a
material effect on the Company's operations.
See also Note 11 to the Consolidated Financial Statements on page 31.
Item 4 Submission Of Matters To A Vote Of Security Holders
There were no matters submitted to a vote of security holders during the
fiscal quarter ended March 31, 1996.
PART II
Item 5 Market for the Registrant's Common Stock and
Related Stockholder Matters
See the section entitled "Quarterly Financial Data" appearing on page 19 for
information regarding Common Stock market prices. Dividends have not been paid
in either of the past two fiscal years. See Note 5 to the Consolidated
Financial Statements appearing on pages 23 through 25 for information regarding
dividend restrictions.
7
Item 6 Selected Financial Data
Five Year Financial Summary
(In thousands, except per share amounts and financial ratios)
Fiscal Year
1996 1995 1994 1993 1992
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Results of Operations
Sales............................... $ 96,894 $78,254 $ 70,147 $69,543 $71,032
Income (loss) before
extraordinary item................. 3,794 2,847 (11,466) (2,987) 113
Extraordinary item-utilization of
net operating loss carryforward.... - - - - 9
Net income (loss)................... 3,794 2,847 (11,466) (2,987) 122
Per share data
Net income (loss)................. $ .43 $ .36 $ (1.53) $ (.40) $ .02
Weighted average common
shares........................... 8,755 7,882 7,502 7,464 7,429
Financial Ratios
Return (based on net
income-net loss)
On sales.......................... 3.9% 3.6% (16.3%) (4.3%) 0.2%
On average assets................. 6.0% 6.0% (23.4%) (5.6%) 0.2%
On average equity................. 8.9% 11.0% (38.3%) (8.1%) 0.3%
Current Ratio....................... 3.35 1.68 1.64 2.26 2.90
Debt to Equity...................... 4.5% 17.1% 19.9% 11.8% 13.1%
Financial Position
Working Capital..................... $ 32,647 $10,983 $ 8,981 $15,767 $17,800
Additions to property, plant
and equipment...................... 12,297 5,248 2,939 4,112 1,274
Total assets........................ 75,423 50,167 44,430 53,777 53,211
Long-term debt...................... 2,565 4,744 4,826 4,191 5,030
Long-term capital lease
obligations........................ 565 754 892 1,032 -
Stockholders' equity................ 57,533 27,674 24,261 35,565 38,456
Other Statistics
New orders (net of cancellations)... 103,200 84,900 66,700 70,500 66,500
Backlog at year end................. $ 36,500 $30,200 $ 23,500 $26,900 $25,900
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8
Item 7 Management's Discussion And Analysis Of Financial
Condition And Results Of Operations
The Company set record levels for sales and orders for fiscal 1996, and
earnings increased 33% in fiscal 1996 as compared with the prior year. In
fiscal 1996, the Company doubled its investments in product development mainly
for the Gallium Arsenide Monolithic Integrated Circuits (GaAs MMICs) and
ceramic products aimed at the wireless communication markets. At the same
time, the Company increased unit output by 64% due to improved manufacturing
efficiencies and added capacity for both semiconductor and ceramic products.
These actions have positioned the Company to support higher demands
particularly for wireless communication products. Unfortunately, an overall
softness in the North American cellular market and the delayed roll-out of the
Personal Communications System (PCS) is expected to result in lower demand
throughout the summer of 1996. With lower volumes, higher fixed costs
associated with the Company maintaining its readiness to serve the wireless
market and a decision to exit certain non-strategic business areas, the Company
expects to report a net loss for the first quarter of fiscal 1997. As demand
returns and increases, the Company anticipates improved results for the
remainder of fiscal 1997.
Results Of Operations
Sales for fiscal 1996 increased 23.8% to $96.9 million as compared to sales
of $78.3 million in fiscal 1995 and $70.1 million for fiscal 1994. The
increases in fiscal 1996 and 1995 sales were attributable to increased unit
volume in the Company's GaAs MMIC, ceramic and discrete semiconductor product
lines primarily into the commercial wireless markets. These unit volume
increases were partially offset by a decline in average selling prices because
of the Company's shift to high volume business in the commercial sector. As
the Company continues to gain strength in the commercial wireless markets,
direct sales to the United States Defense Department continue to decline, with
24% of fiscal 1996 sales related to military subcontracts for ultimate sale to
the Defense Department or foreign governments, compared with 29% in fiscal
1995, and 40% in fiscal 1994. The decrease in defense related business for
fiscal 1996 and 1995 was attributable to the decline in traditional military
products and reduced funding for certain weapons systems.
Gross profit increased 29.4% in fiscal 1996 to $30.9 million, or 31.9% of
sales, as compared to $23.9 million, or 30.5% of sales in fiscal 1995 and $14.8
million or 21.0% of sales in fiscal 1994. The improvement in gross profit for
fiscal 1996 and 1995 was the result of (a) increased sales volumes (b) higher
capacity utilization at the Company's Woburn, Massachusetts manufacturing
facility and (c) greater efficiencies due to the consolidation of facilities
that took place in fiscal 1994 when the Company moved several product lines to
its Woburn, Massachusetts plant. The Company recorded lower margins in the
fourth quarter of fiscal 1996 as a result of flattening sales and rising costs
due to added manufacturing capacity. In anticipation of the demand for
wireless communication products increasing over the second half of fiscal 1997,
the Company has decided to maintain its current levels of manufacturing
capacity for MMICs, discrete semiconductors and ceramic products which will
result in lower gross margins in the first quarter of fiscal 1997, but with
steady improvement expected as the volumes increase with higher demand.
Research and development expenses increased 120.2% in fiscal 1996 to $9.1
million, or 9.4% of sales, from $4.2 million, or 5.3% of sales in fiscal 1995.
Research and development expenses increased 21.1% in fiscal 1995 from $3.4
million or 4.9% of sales in fiscal 1994. These increases in research and
development reflect the continued investment by the Company in the GaAs MMIC
and ceramic product lines. The Company will continue to invest in product and
process development in order to address the demands of its targeted wireless
markets. Customer sponsored R&D decreased $3.4 million in fiscal 1996, $1.9
million in fiscal 1995 and $1.5 million in fiscal 1994. As customer sponsored
R&D continues to decrease, the Company sponsored R&D will continue to increase
since the Company is strongly committed to developing new wireless
communications products. However, whenever possible the Company will try to
fund its R&D through collaborative developmental contracts.
9
Selling and administrative expenses increased to $17.2 million, or 17.8% of
sales, in fiscal 1996. Whereas selling and administrative expenses decreased to
$15.7 million, or 20.1% of sales, in fiscal 1995 from $16.3 million, or 23.2%
of sales in fiscal 1994. The increase in selling and administrative expenses
for fiscal 1996 is primarily a result of training and other costs related to
the early phases of implementation of a new manufacturing and management
information system, as well as increased commissions related to higher sales
volume. The decrease in selling and administrative expenses for fiscal 1995
was primarily attributable to a reduction in administrative personnel completed
during the fourth quarter of fiscal 1994, as a result of the consolidation of
the Company's operations in Methuen, Massachusetts into its operations in
Woburn, Massachusetts.
Interest expense remained relatively constant for fiscal 1996 and 1995. In
fiscal 1995 interest expense decreased $40 thousand from fiscal 1994 since
certain financing costs associated with the Methuen facility were charged to
the repositioning cost in the fourth quarter of fiscal 1994.
Interest income increased $315 thousand largely due to interest earned on
funds received from a stock offering that was completed during the third
quarter of fiscal 1996. The Company successfully completed a secondary public
offering which raised $25.3 million, net of expenses, on the sale of 1,840,000
shares of common stock. The proceeds are being used to fund further capital
expansion, to retire certain bank debt, for working capital, potential
acquisitions and general corporate purposes. Interest income remained constant
for fiscal 1995 and 1994. Other expense and income increased by $43 thousand in
fiscal 1996 compared with fiscal 1995 and decreased $82 thousand in fiscal 1995
in relation to fiscal 1994. These fluctuations are due to currency gains and
losses.
The Company's effective tax rate for fiscal 1996 was 15% compared to the
current combined federal, state and foreign rate of approximately 40%. This
rate differed from statutory rates primarily as a result of the utilization of
net operating loss carryforwards. At March 31, 1996, the Company had available
net operating loss carryforwards of approximately $25 million which will expire
commencing in 2004.
Net income for fiscal 1996 was $3.8 million or $0.43 per share versus $2.8
million or $0.36 per share for fiscal 1995 and a net loss of $11.5 million or
$1.53 per share for fiscal 1994. The first quarter of fiscal 1996 included a
repositioning credit of $320 thousand or $0.03 per share which resulted from
the reversal of certain accruals for estimated carrying costs as a result of an
earlier than expected disposition of the Methuen, Massachusetts facility. Per
share data reflects the stock offering completed in the third quarter of fiscal
1996.
The Company expects a loss of approximately $0.24 to $0.27 per share for the
first quarter of fiscal 1997, as a result of: (i) lower shipments in the
quarter, (ii) the decision to maintain production capacity, (iii) the decision
to continue product development work, and (iv) the exiting of certain
non-strategic areas. The Company has previously announced that it anticipates
break-even to positive results in the second quarter of fiscal 1997, and if an
anticipated resurgence of demand for the Company's products sold into the
wireless communications industry leads to increased orders beginning in the
second quarter of fiscal 1997, the Company expects to report improved operating
results and a return to profitability in the second half of fiscal 1997.
Financial Position
At March 31, 1996, working capital totaled $32.6 million and included $15.5
million in cash, cash equivalents, and short-term investments, compared with
$11.0 million of working capital at the end of fiscal 1995. Cash increased
$7.8 million during fiscal 1996 mainly as a result of proceeds received from
the secondary public offering. During fiscal 1996, the Company had $12.3
million of capital expenditures primarily for the expansion of its ceramic
manufacturing facilities, further automation of its semiconductor wafer fab
operations, and various information technology equipment. The Company remains
strongly committed to adding the required capacity needed to service the
wireless markets as the demand begins to return. In addition to the proceeds
received from the offering, the Company also has two lines of credit available
for a total of $12.5 million. The Company entered into a $7.5 million working
capital line of credit agreement which expires on August 1, 1997,
10
and a $5 million equipment line of credit which expires on July 31, 1996. At
expiration both lines are expected to be renewed. At March 31, 1996 there was
$1 million outstanding under the equipment line of credit.
In July 1995, the Company sold its Methuen, Massachusetts plant and received
net proceeds of $2.5 million. In connection with the sale, using the net
proceeds and $1 million borrowed under its line of credit, the Company retired
$3.5 million of related debt.
With the funds raised from the secondary offering and the lines of credit
available, the Company believes it has adequate funds to support its current
operating needs. The Company will continue to evaluate other available
financing such as low interest financing for the capital expansion of its
ceramic manufacturing business and any other sources that may become available.
Other Matters
During the third quarter, the Company successfully completed a surveillance
audit to renew its ISO 9001 certification of its Woburn, Massachusetts facility.
Inflation did not have a significant impact upon the results of operations
of the Company during the three year period ended March 31, 1996.
In March 1995, the Financial Accounting Standards Board issued Statement No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" (FAS 121), which becomes effective for fiscal years
beginning after December 15, 1995. This standard establishes accounting
standards for the impairment of long-lived assets, certain identifiable
intangibles, and goodwill related to those assets to be held and used for
long-lived assets and certain identifiable intangibles to be disposed of. The
Company will adopt FAS 121 for fiscal 1997 and believes that adoption of this
standard will not have a material impact on the financial condition or
operating results of the Company.
In October 1995, the Financial Accounting Standards Board issued Statement
No. 123, "Accounting for Stock-Based Compensation" (FAS 123), which becomes
effective for fiscal years beginning after December 15, 1995. Under FAS 123,
companies can elect to adopt the new accounting method, which accounts for
stock- based compensation based on the fair value at the date of grant.
Companies that choose not to adopt FAS 123 would continue to follow the
provisions of Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees". In addition, those companies who choose not to adopt the
new accounting method prescribed by FAS 123 would be required to provide
proforma disclosures of net income and earnings per share, assuming FAS 123 had
been adopted. The Company currently does not expect to adopt the new
accounting method prescribed by FAS 123.
Forward-Looking Statements
Except for the historical information contained herein, the discussion in
this Report contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Report
should be read as being applicable to all forward-looking statements wherever
they appear in this Report. The Company's actual results could differ
materially from those discussed herein. Factors that could cause or contribute
to such differences are discussed below.
Current Market Softness
As the Company has previously announced, overall softness in the North
American cellular market and the delayed roll-out of the Personal
Communications System (PCS), have significantly impacted the Company's orders
and shipments. Although the Company believes that the market softness will
abate, especially as orders for new PCS equipment increase, there can be no
assurance as to when, if at all, these events will occur, how significant they
will be to the industry and the Company in particular, and whether or not the
Company will
11
receive new orders in any such demand run-up that will be consistent with its
past market share. Substantial delay in the new demand, or failure of the
Company to receive the anticipated share of such new orders would have a
material and adverse effect on the Company's business, financial condition and
operating results.
Repositioning of Company's Business
The Company has in recent years worked to reposition its business, away from
military sales and into commercial sales. Military sales have been declining,
and the Company anticipates that revenues from military sales will continue to
decline. There can be no assurance that the Company's effort to reposition
itself as a supplier of advanced products to wireless communications markets
will be successful. If revenues from commercial wireless customers do not grow,
or grow less rapidly than expected, or if in the near term revenues from
military sales decline more rapidly than expected, the Company's operating
results could be materially and adversely affected.
Variability of Operating Results
The Company's quarterly and annual results have varied in the past and may
vary significantly in the future due to a number of factors, including:
cancellation or delay of customer orders; market acceptance of the Company's or
its customers' products; variations in manufacturing yields; timing of
announcement and introduction of new products by the Company and its
competitors; changes in revenue and product mix; competition; changes in
manufacturing capacity and variations in the utilization of this capacity;
variations in average selling prices; variations in operating expenses; the
long sales cycles associated with the Company's customer specific products; the
timing and level of product and process development costs; cyclicality of the
semiconductor and ceramic industries; the timing and level of nonrecurring
engineering revenues and expenses relating to customer specific products; and
changes in inventory levels. Any unfavorable changes in these or other factors
could have a material adverse effect on the Company's operating results. The
Company's expense levels are based, in part, on its expectations as to future
revenue, and certain of these expenses, particularly those relating to the
Company's capital equipment and manufacturing overhead, are relatively fixed in
nature. For example, the Company is investing in GaAs, silicon and ceramic
process development technology in anticipation of increased revenues from
related markets. As a result of the relatively fixed nature of certain of the
Company's expenses, operating results would be disproportionately and adversely
affected by a reduction in revenue. The Company expects that its operating
results will continue to fluctuate in the future as a result of these and other
factors.
Customer Concentration
Historically, a significant portion of the Company's sales in each fiscal
period has been concentrated among a limited number of customers. This trend is
accelerating, and in recent periods sales to the Company's major customers as a
percentage of total sales have increased. The Company does not generally enter
into long-term contracts with its customers, and when it does, the contract is
generally terminable for the convenience of the customer. If the Company were
to lose one of these major customers, or if orders by a major customer
otherwise were to decrease, or if major orders were to be cancelled or
deferred, the Company's business, financial condition and operating results
would be materially and adversely affected.
Product And Process Development And Technological Change
The wireless communications industry is characterized by frequent new
product introductions, evolving industry standards and rapid changes in product
and process technologies. The Company believes that its future success will
depend upon its ability to continue to improve its product and process
technologies and develop new technologies. The success of the Company's new
products is dependent upon many factors, including factors that are outside the
Company's control. These factors include: the Company's ability to anticipate
market requirements in its product development efforts; market acceptance and
continued commercial success of OEM products for which the Company's products
have been designed; the ability to adapt to technological changes and to
support established and emerging industry standards; successful and timely
completion of product development and commercialization; achievement of
acceptable wafer fabrication and ceramic process yields and manufacturing
yields generally; and the ability to offer new products at competitive prices.
No assurance can be given that the Company's product and process development
efforts will be successful or that the Company's new products or those of its
customers will achieve or sustain market acceptance. In addition, the wireless
communications industry is characterized by end-user demands for increased
functionality at ever lower prices.
12
To remain competitive, the Company must obtain yield and productivity
improvements and cost reductions and must introduce new products which
incorporate advanced features and which therefore can be sold at higher average
selling prices. To the extent that such cost reductions and new product
introductions do not occur in a timely manner or the Company's or its
customers' products do not achieve market acceptance, the Company's operating
results could be materially and adversely affected.
Manufacturing Risks
The manufacturing processes for the Company's products, in particular its
GaAs MMICs, are highly complex and precise, requiring advanced and costly
equipment, and are being modified continually in an effort to improve yields
and product performance. The Company expects that its customers will continue
to establish demanding specifications for quality, performance and reliability
that must be met by the Company's products. The Company has limited experience
in high volume manufacturing of certain GaAs MMICs and ceramic products for the
high volume commercial applications on which its current product development,
sales and marketing efforts are focused. The Company has encountered and may in
the future encounter development and manufacturing delays, has from time to
time failed and may in the future fail to meet its customers' contractual
specifications, and one or more of its products have contained and may in the
future contain undetected defects or failures when first introduced or after
commencement of commercial shipments. If such delays, defects or failures
occur, the Company could experience lost revenue, resulting from delays in or
cancellations or rescheduling of orders or shipments, product returns or
discounts, or could experience increased costs, including product or process
redesign, warranty expense or costs associated with customer support, any of
which could have a material adverse effect on the Company's operating results.
There can be no assurance that the Company will not in the future experience
significant product quality, performance or reliability problems.
Cyclicality of the Company's Markets
While the semiconductor and ceramic markets have in the past experienced
overall growth, they have historically been characterized by wide fluctuations
in product supply and demand. From time to time, these industries have also
experienced significant downturns, often in connection with, or in anticipation
of, maturing product cycles and declines in general economic conditions. These
downturns have been characterized by diminished product demand, production
overcapacity and subsequent accelerated price erosion, and in some cases have
lasted for extended periods of time. The Company's business is currently, and
may in the future be, materially and adversely affected by industry-wide
fluctuations. The Company's continued success will depend in large part on the
continued growth of the wireless communications industry. No assurance can be
given that the Company will not be adversely affected in the future by cyclical
conditions in the wireless communications industry.
Competition
Wireless communications markets are intensely competitive and are
characterized by rapid technological change, rapid product obsolescence and
price erosion. Currently, the Company competes primarily with manufacturers of
high performance GaAs MMICs, discrete silicon semiconductors, ceramic filters
and other ceramic products and microwave and millimeter wave components and
subsystems. The Company expects increased competition both from existing
competitors and others which may enter these markets, as well as potential
future competition from companies which may offer new or emerging technologies,
such as surface acoustic wave filters, silicon germanium and other silicon
technologies. In addition, many of the Company's customers, particularly its
largest customers, have or could acquire the capability to develop or
manufacture products competitive with those that have been or maybe developed
or manufactured by the Company. The Company's future operating results may
depend in part upon the extent to which these customers elect to purchase from
outside sources rather than develop and manufacture their own systems. A number
of the Company's competitors have significantly greater financial, technical,
manufacturing and marketing resources than the Company. The ability of the
Company to compete successfully depends in part upon the ability of the Company
to develop price competitive, high quality solutions for OEMs and the extent to
which customers select the Company's products over competitors' products for
their systems. There can be no assurance that the Company will be able to
compete successfully in the future.
13
Item 8 Financial Statements And Supplementary Data
Index To Financial Statements
Page
- ----------------------------------------------------------------------------------------
Consolidated Balance Sheets - March 31, 1996 and April 2, 1995................. 15
Consolidated Statements of Operations - Years ended March 31, 1996,
April 2, 1995, and April 3, 1994............................................... 16
Consolidated Statements of Cash Flows - Years ended March 31, 1996,
April 2, 1995, and April 3, 1994............................................... 17
Consolidated Statements of Stockholders' Equity - Years ended March 31, 1996,
April 2, 1995, and April 3, 1994.............................................. 18
Quarterly Financial Data (unaudited) - Fiscal 1996 and Fiscal 1995............. 19
Notes to Consolidated Financial Statements..................................... 20
Independent Auditors' Report................................................... 32
- ----------------------------------------------------------------------------------------
14
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands except share and per share amounts)
MARCH 31, APRIL 2,
1996 1995
- --------------------------------------------------------------------------------------------------
Assets
Current assets
Cash and cash equivalents (Note 5)................................... $11,326 $ 3,510
Short-term investments (Note 5)...................................... 4,143 -
Accounts receivable, trade, less allowance
for doubtful accounts of $634 and $783 (Note 5)..................... 17,688 13,548
Inventories (Notes 4 and 5).......................................... 12,015 9,370
Prepayments and other current assets................................. 1,379 756
------- -------
Total current assets............................................. 46,551 27,184
------- -------
Property, plant and equipment (Note 5)
Land................................................................. 462 462
Building and improvements............................................ 22,788 22,148
Machinery and equipment.............................................. 54,794 51,162
------- -------
78,044 73,772
Less-accumulated depreciation and amortization....................... 49,908 53,283
------- -------
28,136 20,489
------- -------
Other assets........................................................... 736 594
Property held for resale (Note 6)...................................... - 1,900
------- -------
$75,423 $50,167
======= =======
Liabilities And Stockholders' Equity
Current liabilities
Notes payable, bank (Note 5)......................................... $ - $ 3,000
Current maturities of long-term debt (Note 5)........................ 332 339
Current maturities of capital lease obligations (Note 5)............. 443 370
Accounts payable..................................................... 7,075 5,206
Repositioning reserve (Note 6)....................................... - 991
Accrued liabilities
Payroll, commissions and related expenses.......................... 4,898 4,777
Other (Note 7)..................................................... 1,156 1,518
------- -------
Total current liabilities........................................ 13,904 16,201
------- -------
Long-term debt (Note 5)................................................ 2,565 4,744
Long-term capital lease obligations (Note 5)........................... 565 754
Other long-term liabilities............................................ 856 794
------- -------
Commitments and contingencies (Note 11)
Stockholders' equity
Common stock par value $.25 per share: authorized
30,000,000 shares; issued 9,938,587 and 7,994,495 shares (Note 9)... 2,484 1,999
Additional paid-in capital (Note 9).................................. 53,468 27,921
Retained earnings (accumulated deficit) (Note 5)..................... 2,056 (1,738)
------- -------
58,008 28,182
Less - Treasury shares 249,052 and 262,886 at cost................... 321 330
Unearned compensation-restricted stock (Note 9).................... 154 178
------- -------
Total stockholders' equity......................................... 57,533 27,674
------- -------
$75,423 $50,167
======= =======
- --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
15
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per share amounts)
YEAR ENDED
MARCH 31, APRIL 2, APRIL 3,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
Sales.................................................... $ 96,894 $ 78,254 $ 70,147
---------- --------- ---------
Cost of sales............................................ 65,986 54,376 55,395
Research and development expenses (Note 2)............... 9,148 4,154 3,429
Selling and administrative expenses...................... 17,226 15,727 16,281
Repositioning (credit) expenses (Note 6)................. (320) - 5,639
---------- --------- ---------
92,040 74,257 80,744
Operating income (loss).................................. 4,854 3,997 (10,597)
---------- --------- ---------
Other income (expense)
Interest expense........................................ (743) (728) (768)
Interest income......................................... 372 57 64
Other (expense) income, net............................. (20) 23 105
---------- --------- ---------
(391) (648) (599)
---------- --------- ---------
Income (loss) before income taxes........................ 4,463 3,349 (11,196)
Provision for income taxes (Note 8)...................... 669 502 270
---------- --------- ---------
Net income (loss)........................................ $ 3,794 $ 2,847 $ (11,466)
========== ========= =========
Net income (loss) per share.............................. $ .43 $ .36 $ (1.53)
========== ========= =========
Weighted average common shares and
common share equivalents................................ 8,755 7,882 7,502
========== ========= =========
- ---------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
16
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
YEAR ENDED
MARCH 31, APRIL 2, APRIL 3,
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY OPERATIONS:
Net income (loss)..................................................... $ 3,794 $ 2,847 $ (11,466)
Adjustments to reconcile net income (loss) to
net cash provided by operations:
Depreciation and amortization of property, plant,
and equipment...................................................... 4,628 4,106 4,521
Amortization of unearned compensation - restricted stock............ 61 64 44
Unearned compensation............................................... - - (11)
(Gain) loss on sales and retirements of property,
plant, and equipment.............................................. (9) 26 -
(Gain) loss on property, plant and equipment due
to repositioning.................................................. (320) - 2,479
Increase in other assets............................................ (395) (536) (69)
Increase (decrease) in other liabilities and long-term benefits..... 62 399 (70)
Issuance of treasury stock to ESOP.................................. 220 12 -
Change in assets and liabilities
Accounts receivable............................................... (4,140) (305) 706
Inventories....................................................... (2,645) (1,757) 2,331
Prepayments and other current assets.............................. (623) (266) 482
Accounts payable.................................................. 1,869 141 912
Accrued liabilities............................................... (241) 1,237 (349)
Repositioning reserve............................................. (991) (967) 1,958
--------- --------- ----------
Net cash provided by operations..................................... 1,270 5,001 1,468
--------- --------- ----------
CASH USED IN INVESTMENTS:
Additions to property, plant and equipment
excluding capital leases............................................. (11,972) (4,971) (2,630)
Purchases of short-term investments................................... (12,113) - -
Maturities of short-term investments.................................. 7,970 - -
Proceeds from sale of property, plant and equipment................... 31 68 33
Proceeds from sale of property held for resale........................ 2,465 - -
--------- --------- ----------
Net cash used in investments........................................ (13,619) (4,903) (2,597)
--------- --------- ----------
CASH PROVIDED BY (USED IN) FINANCING:
Proceeds from notes payable........................................... 621 1,983 131
Payments on notes payable............................................. (5,807) (330) (623)
Payments on capital lease obligations................................. (441) (416) (311)
Deferred charges related to long-term debt............................ 8 (6) 68
Exercise of stock options............................................. 392 391 45
Proceeds from sale of stock........................................... 25,392 99 84
--------- --------- ----------
Net cash provided by (used in) financing............................ 20,165 1,721 (606)
--------- --------- ----------
Net increase (decrease) in cash and cash equivalents.................. 7,816 1,819 (1,735)
Cash and cash equivalents, beginning of year.......................... 3,510 1,691 3,426
--------- --------- ----------
Cash and cash equivalents, end of year................................ $ 11,326 $ 3,510 $ 1,691
========= ========= ==========
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures:
Capital lease obligations of $325 thousand, $277 thousand, and $309 thousand
were incurred during the years ended March 31, 1996, April 2, 1995, and April
3, 1994, respectively, when the Company entered into leases for new equipment.
The accompanying notes are an integral part of these financial statements.
17
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
RETAINED UNEARNED
ADDITIONAL EARNINGS COMPENSATION
COMMON STOCK PAID-IN (ACCUMULATED) TREASURY RESTRICTED
SHARES PAR VALUE CAPITAL (DEFICIT) STOCK STOCK
- --------------------------------------------------------------------------------------------------------------------------------
Balance March 28, 1993 .......... 7,736 $ 1,934 $27,193 $ 6,881 $ (310) $ (133)
Net loss ........................ - - - (11,466) - -
Employee Stock Purchase Plan .... 29 7 77 - - -
Issuance of restricted shares ... 5 1 15 - - (16)
Amortization of unearned
compensation restricted stock .. - - - - - 44
Repurchase 8,333 shares of
restricted stock ............... - - - - (21) 10
Exercise of stock options ....... 17 5 40 - - -
-------- ------- -------- --------- -------- -------
Balance April 3, 1994 ........... 7,787 1,947 27,325 (4,585) (331) (95)
Net income ...................... - - - 2,847 - -
Employee Stock Purchase Plan .... 29 7 92 - - -
Issuance of restricted stock .... 31 8 139 - - (147)
Amortization of unearned
compensation restricted stock .. - - - - - 64
Issuance 1,110 treasury shares
to ESOP ........................ - - 11 - 1 -
Exercise of stock options ....... 147 37 354 - - -
-------- -------- -------- -------- -------- --------
Balance April 2, 1995 ........... 7,994 1,999 27,921 (1,738) (330) (178)
Net income ...................... - - - 3,794 - -
Stock offering net
of expenses .................... 1,840 460 24,802 - - -
Employee Stock Purchase
Plan ........................... 17 4 126 - - -
Issuance of restricted stock .... 9 2 49 - - (51)
Amortization of unearned
compensation restricted
stock .......................... - - - - - 61
Issuance 18,334 treasury shares
to ESOP ........................ - - 197 - 23 -
Repurchase 4,500 shares of
restricted stock ............... - - - - (14) 14
Exercise of stock options ....... 79 19 373 - - -
-------- -------- ------- ------- ------- -------
Balance March 31, 1996 .......... 9,939 $ 2,484 $53,468 $ 2,056 $ (321) $ (154)
======== ======== ======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
18
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
QUARTERLY FINANCIAL DATA
(unaudited)
(In thousands except per share data)
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
- -----------------------------------------------------------------------------------------------------------
FISCAL 1996
Sales.................................. $ 22,434 $ 23,733 $ 25,237 $ 25,490 $ 96,894
Gross profit........................... 7,382 7,897 8,553 7,076 30,908
Net income............................. 1,114 1,081 1,437 162 3,794
Per share data
Net income(1)......................... .14 .13 .16 .02 .43
Market price range:
High................................. 15-1/4 19-5/8 17-7/8 13-7/8 19-5/8
Low.................................. 10-5/8 14-1/8 10-1/2 7 7
FISCAL 1995
Sales.................................. $ 18,675 $ 18,253 $ 19,359 $ 21,967 $ 78,254
Gross profit........................... 5,618 5,397 5,865 6,998 23,878
Net income............................. 603 659 774 811 2,847
Per share data
Net income............................ .08 .08 .10 .10 .36
Market price range:
High................................. 4-1/2 6-7/8 7-3/8 11-5/8 11-5/8
Low.................................. 3 3-7/8 5-1/4 6-3/8 3
- -----------------------------------------------------------------------------------------------------------
The Company's common stock is traded on the American Stock Exchange, symbol
AHA. The number of stockholders of record as of May 31, 1996 was approximately
1,100.
(1) Earnings per share calculations for each of the quarters are based on
the weighted average number of shares outstanding and included common
stock equivalents in each period. Therefore, the sum of the quarters
do not necessarily equal the full year earnings per share.
19
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The financial statements include the accounts of the Company and its
subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation. The Company's fiscal year ends on the
Sunday closest to March 31, there were 52 weeks in fiscal 1996 and 1995,
and 53 weeks in fiscal 1994.
Use of Estimates:
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses. Actual results could differ from those estimates.
Revenue Recognition:
Revenue is recognized when a product is shipped and services are performed.
Contract revenue is recognized on the percentage-of-completion method,
which is primarily measured on the ratio of units shipped to the total
contract number of units. Provisions for estimated losses, if any, on
uncompleted contracts are made in the period in which such losses are
determined.
Foreign Currency Translation:
The accounts of foreign subsidiaries are translated in accordance with the
Financial Accounting Standards Board Statement No. 52. Foreign operations
are remeasured as if the functional currency were the U.S. dollar. Monetary
assets and liabilities are translated at the year end rates of exchange.
Revenues and expenses (except cost of sales and depreciation) are
translated at the average rate for the period. Non-monetary assets, equity,
cost of sales and depreciation are remeasured at historical rates.
Remeasurement gains and losses are reflected currently in operations and
are not material.
Research and Development Expenditures:
Research and development expenditures are charged to income as incurred
unless they are reimbursed under specific contracts. Losses incurred on the
equity basis in the Company's two joint ventures are included in research
and development.
Cash, Cash Equivalents and Short-term Investments:
Cash and cash equivalents include cash deposited in demand deposits at
banks and highly liquid investments with original maturities of 90 days or
less.
During fiscal year 1996, the Company adopted Statement of Financial
Accounting Standard No. 115, "Accounting for Certain Investments in Debt
and Equity Securities." Accordingly, the Company's short-term investments
are classified as held-to-maturity. These investments consist primarily of
commercial paper and bonds with original maturities of more than 90 days.
Such short-term investments are carried at amortized cost, which
approximates fair value, due to the short period of time to maturity. Gains
and losses are included in investment income in the period they are
realized.
Inventories:
Inventories are stated at the lower of cost, determined on a first-in,
first-out basis, or market.
Property, Plant and Equipment:
Property, plant and equipment are carried at cost. Depreciation is provided
on the straight-line method for financial reporting and accelerated methods
for tax purposes.
Estimated useful lives used for depreciation purposes are 5 to 30 years for
buildings and improvements and 3 to 10 years for machinery and equipment.
During fiscal 1996, the Company removed $7.7 million of fully depreciated
fixed assets from the related property and accumulated depreciation
accounts.
20
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments:
Financial instruments of the Company consist of cash, cash equivalents,
accounts receivable, accounts payable and accrued liabilities. The carrying
value of these financial instruments approximates their fair value because
of the short maturity of these instruments. Based upon borrowing rates
currently available to the Company for issuance of similar debt with
similar terms and remaining maturities, the estimated fair value of long-
term debt approximates their carrying amounts.
Income Taxes:
The Company uses the asset and liability method of accounting for income
taxes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the estimated future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
This method also requires the recognition of future tax benefits such as
net operating loss carryforwards, to the extent that realization of such
benefits is more likely than not. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment
date.
Net Income Per Share:
In fiscal 1996, 1995, and 1994, the computation of both primary and fully
diluted earnings per share was based on the weighted average number of
outstanding common shares, however, fiscal 1996 and 1995 included common
stock equivalents. Fiscal 1994 common stock equivalents did not
significantly affect the per share amount and, accordingly, were not
included in the computation. The inclusion of additional shares assuming
the exercise of stock options would have been insignificant or
antidilutive. In fiscal 1996 and 1995 the computation was based on the
weighted average shares of common stock outstanding plus common equivalent
shares arising from the effect of dilutive stock options and warrants,
using the treasury stock method. The weighted average number of shares of
common stock and common equivalent shares outstanding, if applicable, for
the calculation of primary earnings per share was 8,755,000 in fiscal 1996,
7,882,000 in fiscal 1995, and 7,502,000 in fiscal 1994.
NOTE 2 JOINT VENTURES
In fiscal 1984, the Company and Aerojet ElectroSystems Company formed a
joint venture, and in fiscal 1987 the Company entered into a similar
arrangement with Martin Marietta Corporation. These ventures were formed for
the purpose of developing and producing certain millimeter wave monolithic
integrated circuits. Each joint venture may be terminated by either party at
any time.
The Company's joint ventures with Aerojet ElectroSystems Company and Martin
Marietta Corporation were created to share research and development expenses in
order to develop technology for millimeter wave monolithic integrated circuits.
In the case of the Aerojet/Alpha venture, this partnership has been dormant
since 1987. The partnership has no remaining assets or liabilities. As for the
Martin/Alpha venture, the only assets or liabilities that exist are the
original capitalization of $5,000 and the amounts due to/due from the partners.
The technical goals established by this partnership were completed and this
partnership ceased activity during fiscal 1996. The Company's share of the
joint venture's research and development expenses are recorded in the Company's
consolidated statements of operations. The Company has no investment recorded
on its consolidated balance sheets for either joint venture.
The Company's share of losses incurred by the joint ventures is recorded on
the equity basis and included in research and development expenses. The losses
were approximately $167,000, $895,000, and $856,000 in fiscal 1996, 1995, and
1994, respectively.
21
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 COMPANY OPERATIONS
The Company operates in one industry segment: the development, production
and sale of microwave materials, devices and components. Sales include export
sales primarily to Europe and Southeast Asia of $23,633,000, $16,855,000, and
$16,471,000, in fiscal 1996, 1995, and 1994, respectively.
During fiscal year 1996 and 1995 no one customer accounted for 10% or more
of the Company's total sales, whereas during fiscal 1994, one customer
accounted for 15% of the Company's total sales. The Company is focused on four
major OEMs and six other customers that the Company believes are principal
suppliers to these OEMs in the wireless communications market. For fiscal 1996
sales to the four major OEMs and their suppliers represented approximately 29%
of the Company's sales. In fiscal 1995 and 1994 sales to these OEMs and their
suppliers represented approximately 17% and 10% of the Company's sales,
respectively. While the Company believes that these emerging wireless markets
afford great opportunities, such customer concentration could have an adverse
affect on the business.
During fiscal 1996, the Company operated sales subsidiaries in the United
Kingdom and Germany, and a ceramic manufacturing operation in France. The
Company closed its sales subsidiary in Germany during fiscal 1996 and replaced
it with an independent sales representative and distributor. The following
table shows certain financial information relating to the Company's operations
in various geographic areas (in thousands):
1996 1995 1994
- ------------------------------------------------------------------------------------------------------------
Sales
United States
Customers.................................................... $ 83,078 $ 67,495 $ 61,963
Intercompany................................................. 8,526 6,665 5,753
Europe
Customers.................................................... 13,816 10,759 8,184
Eliminations.................................................. (8,526) (6,665) (5,753)
-------- -------- --------
Net Sales....................................................... 96,894 78,254 70,147
-------- -------- --------
Income (loss) before taxes
United States................................................. 3,553 2,723 (11,767)
Europe........................................................ 910 626 571
-------- -------- --------
Income (loss) before taxes...................................... 4,463 3,349 (11,196)
-------- -------- --------
Assets
United States................................................. 69,201 44,896 40,454
Europe........................................................ 6,222 5,271 3,976
-------- -------- --------
Total Assets.................................................... $ 75,423 $ 50,167 $ 44,430
======== ======== ========
- ------------------------------------------------------------------------------------------------------------
Transfers between geographic areas are made at terms that allow for a
reasonable profit to the seller.
22
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 INVENTORIES
MARCH 31, APRIL 2,
Inventories consisted of the following (in thousands): 1996 1995
- -----------------------------------------------------------------------------------------------------
Raw materials........................................ $ 4,878 $ 3,186
Work-in-process...................................... 5,830 4,950
Finished goods....................................... 1,307 1,234
-------- --------
$ 12,015 $ 9,370
======== ========
- ------------------------------------------------------------------------------------------------------
Work-in-process inventory has been reduced by allowances for estimated losses to
be sustained on completion of certain contracts. These allowances totaled
$24,000 and $117,000 in fiscal 1996 and 1995, respectively.
NOTE 5 BORROWING ARRANGEMENTS AND COMMITMENTS
LINE OF CREDIT
In September 1995, the Company entered into a $7.5 million Working Capital
Line of Credit Agreement which expires on August 1, 1997 and a $5.0 million
Equipment Line of Credit Agreement which expires on July 31, 1996. These lines
of credit are collateralized by the assets of the Company, excluding real
property, not otherwise collateralized. Interest payments are due monthly at
prime or LIBOR plus 2%. Commitment fees on these lines of credit agreements are
$25,000 for the Equipment Line of Credit and 1/2% per year on the Working
Capital Line of Credit which are to be paid quarterly. At March 31, 1996 there
was $1.0 million outstanding under the equipment line of credit. At April 2,
1995 there was $3.0 million borrowed under a previous line of credit which
expired in September 1995.
LONG-TERM DEBT
MARCH 31, APRIL 2,
Long-term debt consisted of the following (in thousands): 1996 1995
- ------------------------------------------------------------------------------------------------------
Equipment Line of Credit (a)........................ $ 1,011 $ -
9-1/2% Mortgage Note Payable (b).................... 40 80
Industrial Revenue Bonds (c)........................ 667 3,878
UDAG Loan (d) - 438
French Government Sponsored and Start-up Loans (e).. 251 323
CDBG Grant (f)...................................... 928 364
-------- --------
2,897 5,083
Less - current maturities........................... 332 339
-------- --------
$ 2,565 $ 4,744
======== ========
- ------------------------------------------------------------------------------------------------------
a. The equipment line of credit is at LIBOR (5.4375% at March 31, 1996) plus
2% and is due in full on August 1, 1999. This line of credit is
collateralized by the assets of the Company, excluding real property, not
otherwise collateralized.
b. The mortgage note payable is collateralized by land and buildings having a
net book value of $5,319,000 at March 31, 1996. Principal installments of
$3,333, plus interest, are due monthly until March 1997.
c. In July 1995, the Company sold its Methuen, Massachusetts plant and retired
a $3.1 million industrial revenue bond.
Another industrial revenue bond is held by the Farmers and Mechanics
National Bank. The interest rate on this bond is prime and quarterly
principal payments of $27,777 are due until March 2002. The bond is secured
by various property, plant and equipment with a net book value of
$2,652,000 at March 31, 1996.
23
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 BORROWING ARRANGEMENTS AND COMMITMENTS (CONTINUED)
d. The City of Lawrence, Massachusetts loaned the Company $989,000 in proceeds
it acquired from an Urban Development Action Grant (UDAG). Monthly payments
of $10,491 representing principal and interest at 5% on the unamortized
balance were required until January 1999. This debt was repaid when the
Methuen, Massachusetts plant was sold in July 1995.
e. The Company has three unsecured government sponsored and start-up business
loans. The first loan has an interest rate of 8.75% and requires annual
payments of $36,000 beginning December 1994 through December 1998. The
second loan has an interest rate of 5% and from February 1995 through
February 2000 quarterly principal and interest payments of $8,300 are due.
The third loan has an interest rate of 9.0% and requires principal and
interest payments of $3,500 through January 1998.
f. The Company obtained a ten year $960,000 loan from the State of Maryland
under the Community Development Block Grant program. Quarterly payments are
due through December 2003 and represent principal plus interest at 5% of
the unamortized balance.
Aggregate annual maturities of long-term debt are as follows (in thousands):
FISCAL YEAR
- --------------------------------------------------------------------------------
1998.................................... $ 290
1999.................................... 288
2000.................................... 1,271
2001.................................... 234
Thereafter.............................. 482
--------
$ 2,565
========
CAPITAL LEASE OBLIGATIONS
At March 31, 1996 included in property, plant and equipment are the following
capitalized leases (in thousands):
Property, plant and equipment....................... $ 2,154
Accumulated depreciation and amortization.......... 1,127
--------
$ 1,027
========
Future minimum lease payments under the capitalized lease obligations at March
31, 1996 were as follows (in thousands):
FISCAL YEAR
- --------------------------------------------------------------------------------
1997.................................. $ 483
1998.................................. 261
1999.................................. 53
2000.................................. 44
2001.................................. 44
Thereafter............................ 366
--------
Total minimum lease payments................ 1,251
Less: Amount representing interest......... 243
--------
Present value of net minimum lease payments. 1,008
Less: Current maturities................... 443
--------
Long-term maturities........................ $ 565
========
- --------------------------------------------------------------------------------
24
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 BORROWING ARRANGEMENTS AND COMMITMENTS (CONTINUED)
Cash payments for interest were $906,000, $635,000, and $740,000 in fiscal 1996,
1995, and 1994, respectively.
The bonds and line of credit include various covenants that require maintenance
of certain financial ratios and balances and restrict creation of funded debt
and payment of dividends. Under the most restrictive covenants the Company may
not pay dividends except restricted payments in an amount not to exceed $100,000
in connection with the redemption of certain common stock repurchase rights.
NOTE 6 REPOSITIONING CHARGES
On January 25, 1994, the Company announced the transfer of certain component
product lines manufacturing from a facility in Methuen, Massachusetts to the
Company's headquarters facility in Woburn, Massachusetts. These component
product lines were used principally by military customers. Faced with a
continued decline in defense business, the Company determined the need for
further consolidations to reduce operating costs and enhance its competitive
position in commercial electronics markets, principally wireless communications.
In the fourth quarter of fiscal year 1994, the Company recorded a repositioning
charge of $5.6 million which included charges for employee severance costs of
$2.2 million, the write-down of $2.6 million to reduce the carrying value of the
Methuen, Massachusetts plant to its estimated net realizable value and costs
related to the consolidation of the facilities of $800 thousand. During fiscal
1996, 1995 and 1994 the Company paid severance costs of $531 thousand, $600
thousand and $500 thousand, and consolidation costs of $324 thousand, $300
thousand and $600 thousand, respectively. The $2.6 million write-down of the
Methuen plant included $1.2 million for carrying and selling costs through the
expected date of disposal. The Methuen plant was carried at $1.9 million at
April 2, 1995. During fiscal 1996 and 1995, the Company paid $193 thousand and
$500 thousand, respectively, in carrying costs related to the Methuen plant.
In July 1995, the Company sold its Methuen, Massachusetts plant. The Company
received the proceeds of $2.5 million and retired $3.5 million of related debt.
In order to repay the balance of the debt, the Company borrowed approximately
$1.0 million under its line of credit agreement. During the first quarter of
fiscal 1996, the Company recorded a $320 thousand repositioning credit,
attributable to the reversal of certain accruals for estimated carrying costs,
as a result of an earlier than expected disposition of this property. As of
March 31, 1996 the remaining $136 thousand of repositioning reserve (reclassed
to other accruals) is sufficient to cover the remaining severance payments.
NOTE 7 OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following (in thousands):
MARCH 31, APRIL 2,
1996 1995
- --------------------------------------------------------------------------------
Income taxes................................. $ 489 $ 411
Professional services........................ 201 172
Interest..................................... 18 171
Miscellaneous................................ 448 764
------- -------
$ 1,156 $ 1,518
======= =======
- --------------------------------------------------------------------------------
25
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 INCOME TAXES
Income (loss) before income taxes consisted of (in thousands):
1996 1995 1994
- --------------------------------------------------------------------------------
Domestic...................................... $ 3,553 $ 2,723 $(11,767)
Foreign....................................... 910 626 571
-------- -------- --------
$ 4,463 $ 3,349 $(11,196)
======== ======== ========
The provision for income taxes consisted of (in thousands):
1996 1995 1994
- --------------------------------------------------------------------------------
Current income taxes
Federal..................................... $ 69 $ 75 $ -
State....................................... 108 217 126
Foreign..................................... 492 210 144
-------- -------- --------
$ 669 $ 502 $ 270
======== ======== ========
- --------------------------------------------------------------------------------
The provision for income taxes is different from that which would be obtained by
applying the statutory Federal income tax rate to income (loss) before income
taxes. The items causing this difference are as follows (in thousands):
1996 1995 1994
- --------------------------------------------------------------------------------
Tax expense (benefit) at U.S. statutory rate.. $ 1,517 $ 1,139 $ (3,807)
State income taxes, net of Federal benefit.... 71 143 83
Operating loss not currently benefited........ - - 4,044
Change in valuation allowance................. (882) (763) -
Other net..................................... (37) (17) (50)
-------- -------- --------
$ 669 $ 502 $ 270
======== ======== ========
- --------------------------------------------------------------------------------
26
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at March 31, 1996 and
April 2, 1995 are as follows (in thousands):
1996 1995
- -----------------------------------------------------------------------------------------------------------------------
Deferred tax assets:
Accounts receivable due to bad debts............................................. $ 234 $ 293
Inventories due to reserves and inventory capitalization......................... 729 407
Accrued liabilities.............................................................. 575 1,475
Deferred compensation............................................................ 177 243
Other............................................................................ 6 4
Net operating loss carryforward.................................................. 9,275 9,374
Charitable contribution carryforward............................................. 32 33
Short-term capital loss carryforward............................................. - 160
Minimum tax credits and state tax credit carryforwards........................... 415 203
--------- ---------
Total gross deferred tax assets............................................... 11,443 12,192
Less valuation allowance...................................................... (8,314) (9,196)
--------- ---------
Net deferred tax assets....................................................... 3,129 2,996
--------- ---------
Deferred tax liabilities:
Property, plant and equipment due to depreciation................................ (3,129) (2,989)
Other............................................................................ - (7)
--------- ---------
Total gross deferred tax liability............................................ (3,129) (2,996)
--------- ---------
Net deferred tax.............................................................. $ - $ -
========= =========
- -----------------------------------------------------------------------------------------------------------------------
The valuation allowance for deferred tax assets as of March 31, 1996 and April
2, 1995 was $8,314,000 and $9,196,000, respectively. The net change in the total
valuation allowance for the years ended March 31, 1996 and April 2, 1995 was a
decrease of $882,000 and $763,000, respectively.
Cash payments for income taxes were $241,000, $157,000, and $111,000 in fiscal
1996, 1995, and 1994, respectively. As of March 31, 1996, the Company has
available for income tax purposes approximately $25,000,000 in federal net
operating loss carryforwards which may be used to offset future taxable income.
These loss carryforwards begin to expire in fiscal year 2004. The Company also
has minimum tax credit carryforwards of approximately $15,000 which are
available to reduce future federal regular income taxes, if any, over an
indefinite period. In addition, the Company has state tax credit carryforwards
of $400,000 of which $195,000 is available to reduce state income taxes over an
indefinite period.
The Company has not recognized a deferred tax liability of approximately
$930,000 for the undistributed earnings of its 100 percent owned foreign
subsidiaries that arose in 1996 and prior years because the Company currently
does not expect those unremitted earnings to reverse and become taxable to the
Company in the foreseeable future. A deferred tax liability will be recognized
when the Company expects that it will recover those undistributed earnings in a
taxable manner, such as through receipt of dividends or sale of the investments.
As of March 31, 1996, the undistributed earnings of these subsidiaries were
approximately $2.7 million.
27
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 COMMON STOCK
LONG-TERM INCENTIVE PLAN
The Company has a Long-Term Incentive Plan adopted in 1986 pursuant to which
stock options, with or without stock appreciation rights, may be granted and
restricted stock awards and book value awards may be made.
Common Stock Options
These options may be granted in the form of incentive stock options or
non-qualified stock options. The option price may vary at the
discretion of the Compensation Committee but shall not be less than
the greater of fair market value or par value. The option term may not
exceed ten years. The options may be exercised in cumulative annual
increments commencing one year after the date of grant.
Restricted Stock Awards
For fiscal 1996, 1995, and 1994, respectively, a total of 8,500,
31,000, and 5,000 restricted shares of the Company's common stock were
granted to certain employees.
The market value of shares awarded were $51,000, $147,000, and $16,000
for fiscal 1996, 1995, and 1994, respectively. These amounts were
recorded as unearned compensation - restricted stock and are shown as
a separate component of stockholders' equity. Unearned compensation is
being amortized to expense over the five year vesting period and
amounted to $61,000, $64,000 and $44,000 in fiscal 1996, 1995, and
1994, respectively.
LONG-TERM COMPENSATION PLAN
On October 1, 1990, the Company adopted a Supplemental Executive Retirement Plan
(SERP) for certain key executives. Benefits payable under this plan are based
upon the participant's base pay at retirement reduced by proceeds from the
exercise of certain stock options. Options vest over a five year period.
Benefits earned under the SERP are fully vested at age 55, however, the full
amount of accrued benefit will not usually begin until age 65. Compensation
expense related to the plan was $62,000, $68,000, and $130,000 in fiscal 1996,
1995, and 1994, respectively. Total benefits accrued under these plans were
$515,000 at March 31, 1996 and $453,000 at April 2, 1995.
28
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 COMMON STOCK (CONTINUED)
A summary of stock option and restricted stock award transactions follows:
NUMBER OF SHARES OPTION
UNDER OPTIONS AND PRICES
RESTRICTED STOCK AWARDS PER SHARE
- -----------------------------------------------------------------------------------------------
Balance, March 28, 1993................... 984,744 $ 2.375-$8.75
------------ --------------
FISCAL YEAR 1994 TRANSACTIONS
Granted................................. 49,500 3.25-3.625
Exercised/vested........................ (33,554) 2.50-3.75
Cancelled............................... (30,126) 2.50-8.75
------------ --------------
Balance, April 3, 1994.................... 970,564 2.375-8.75
------------ ---------------
FISCAL YEAR 1995 TRANSACTIONS
Granted................................. 87,000 3.875-10.25
Exercised............................... (166,590) 2.50-4.625
Cancelled............................... (21,749) 2.50-10.25
------------ --------------
Balance, April 2, 1995................... 869,225 2.375-10.25
------------ --------------
FISCAL YEAR 1996 TRANSACTIONS
Granted................................. 115,500 10.00-12.75
Exercised............................... (101,096) 2.50-4.625
Cancelled............................... (44,242) 2.50-12.75
------------ --------------
Balance, March 31, 1996................... 839,387 $ 2.375-$12.75
============ ==============
- -----------------------------------------------------------------------------------------------
NUMBER OF NUMBER OF SHARES
SHARES RESERVED FOR
EXERCISABLE FUTURE GRANTS
- -----------------------------------------------------------------------------------------------
March 31, 1996............................ 469,259 214,373
- -----------------------------------------------------------------------------------------------
STOCK PURCHASE WARRANTS
In April 1994, the Company amended its line of credit agreement and issued
50,000 stock purchase warrants to Silicon Valley Bank. The warrants are
exercisable at $3.75 per share and expire on April 1, 1999.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
On September 12, 1994, the shareholders approved a Non-Qualified Stock
Option Plan for Non-Employee Directors. A total of 50,000 options may be
granted under this plan. The option price is the greater of the fair market
value of the shares of common stock at the time the option is granted or four
dollars ($4.00). Options are exercisable 20% per year. During fiscal 1996, a
new director was elected to the Board of Directors and 5,000 non-qualified
stock options were issued at $17.875 per share. In fiscal 1995, each of the
three directors received 5,000 non-qualified stock options issued at $5.875 per
share.
29
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 COMMON STOCK (CONTINUED)
STOCK PURCHASE PLAN
In December 1989, the Company adopted an employee stock purchase plan. The
plan was amended in October 1992 to provide for six month offering periods.
Under the plan, eligible employees may purchase common stock through payroll
deductions of up to 10% of compensation. The price per share is the lower of
85% of the market price at the beginning or end of the offering period. The
plan originally provided for purchases by employees of up to an aggregate of
300,000 shares through December 31, 1995. During fiscal 1996, the employee
stock purchase plan was amended through December 31, 1998. Shares of 16,836,
28,875, and 29,313 were purchased under this plan in fiscal 1996, 1995, and
1994, respectively.
SHAREHOLDER RIGHTS PLAN
In November 1986, the Board of Directors of the Company declared a dividend
distribution of one right for each outstanding share of common stock. Each
right entitles the registered holder to purchase from the Company one common
share at an exercise price of $30 per share. A right will also be issued with
each common share that is issued prior to the time the rights become
exercisable or expire.
The rights are not exercisable until after a person or group acquires 10% or
more of the Company's common stock or announces a tender offer for 10% or more
of the common stock except with respect to persons who already hold 10% in
which case the threshold is any additional shares. In such events, each holder
shall be entitled to purchase that number of shares of the Company's common
stock having a market value equal to two times the $30 per share exercise
price. In lieu of such right, the Board of Directors may issue one share of
common stock for each right held by everyone except the acquiring person or
group. In the event that the Company is acquired in a merger or other business
combination transaction or more than 50% of its assets or earning power are
sold, each holder shall thereafter have the right to receive, upon exercise of
each right, that number of shares of common stock of the acquiring company
which at the time of such transaction would have a market value of two times
the $30 per share exercise price.
The Company is entitled to redeem the rights at five cents per right at any
time before the rights are exercisable. The rights will expire on December 5,
1996 unless earlier redeemed by the Company.
NOTE 10 EMPLOYMENT BENEFIT PLAN
On March 31, 1995, the Company merged its Employee Stock Ownership Plan into
the Alpha Industries, Inc. Saving and Retirement Plan also known as the 401(k)
plan. All of the Company's employees who are at least 21 years old and have
completed six months of service (1,000 hours in a 12 month period) with the
Company are eligible to receive a Company contribution. Company contributions
are determined by the Company and may be in the form of cash or the Company's
stock. Beginning January 1, 1996, the Company will contribute a match of 100%
of the first 1% and a 50% match on the next 4% of an employee's salary for
employees with 5 years or less of service. For employees with more than 5 years
of service the Company will contribute a 100% match on the first 1% and a 75%
match on the next 5% of an employee's salary. During fiscal 1996, the Company
contributed $101,000 for the first three quarters and accrued a contribution of
$208,000 for the fourth quarter of fiscal 1996 that is expected to be
distributed in fiscal 1997 in the form of the Company's stock.
Under the previous 401(k) plan all of the Company's employees who were at
least 21 years old and had completed one year of service (1,000 hours in a 12
month period) with the Company were eligible to receive a Company matching
contribution. The Company contributed $.50 for each $1.00 contributed by
employees, up to a maximum Company matching contribution of $500 per employee
for fiscal 1995 and 1994. For fiscal years 1995 and 1994, the Company
contributed $232,000 and $281,000, respectively.
30
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 EMPLOYMENT BENEFIT PLAN (CONTINUED)
Under the previous Employee Stock Ownership Plan contributions were
determined by the Board of Directors and contributed to a trust created to
acquire shares of the Company's common stock and other assets for the exclusive
benefit of the participants. The Company accrued a contribution of $226,000 for
fiscal 1995 that was distributed during fiscal 1996. No contribution was made
for fiscal 1994.
NOTE 11 COMMITMENTS AND CONTINGENCIES
The Company has various operating leases for manufacturing and engineering
equipment and buildings. Rent expense amounted to $1,626,000, $1,255,000, and
$1,418,000 in fiscal 1996, 1995, and 1994, respectively. Purchase options may
be exercised at various times for some of these leases. Future minimum payments
under these leases is as follows (in thousands):
FISCAL YEAR
- --------------------------------------------------------------------------------
1997.............................. $ 1,265
1998.............................. 1,009
1999.............................. 332
2000.............................. 60
2001.............................. 58
Thereafter........................ 407
--------
$ 3,131
========
- --------------------------------------------------------------------------------
The Company has been notified by federal and state environmental agencies of
its potential liability with respect to the following two sites: the Spectron,
Inc. Superfund site in Elkton, Maryland and the Seaboard Chemical Corporation
site in Jamestown, North Carolina. In each case several hundred other
companies have also been notified about their potential liability regarding
these sites. The Company continues to deny that it has any responsibility with
respect to these sites other than as a de minimis party. Management is of the
-- -------
opinion that the outcome of the aforementioned environmental matters will not
have a material effect on the Company's operations or financial position.
The Company is party to suits and claims arising in the normal course of
business. Management believes these are adequately provided for or will result
in no significant additional liability to the Company.
NOTE 12 RELATED PARTY TRANSACTIONS
The Company has had transactions in the normal course of business with
various other corporations, that are either major stockholders or whose
director is also a director of the Company. Scientific Components Corporation,
currently a beneficial owner of the Company's Common Stock purchased
approximately $4.3 million, $1.9 million and $447 thousand of products during
fiscal 1996, 1995 and 1994, respectively. In addition, a director of the
Company is also a director of Scientific Atlanta, Inc. During fiscal 1996, 1995
and 1994, Scientific Atlanta, Inc. purchased approximately $1.2 million, $766
thousand, $326 thousand of product, respectively.
31
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Alpha Industries, Inc.:
We have audited the consolidated financial statements of Alpha Industries,
Inc. and subsidiaries as listed in the accompanying index under Item 8. In
connection with our audits of the consolidated financial statements, we have
also audited the financial statement schedule as listed in the accompanying
index under Item 14. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Alpha
Industries, Inc. and subsidiaries at March 31, 1996 and April 2, 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended March 31, 1996 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG Peat Marwick LLP
Boston, Massachusetts
May 10, 1996
32
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See the section entitled "Election of Directors" appearing in the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held on September
9, 1996, to be filed within 120 days of the end of the Company's fiscal year,
which section is incorporated herein by reference, and the section entitled
"Executive Officers" under Item 1 of this Annual Report on Form 10-K.
ITEM 11 EXECUTIVE COMPENSATION
See the section entitled "Executive Compensation" appearing in the Company's
Proxy Statement for the Annual Meeting of Stockholders to be held on September
9, 1996, which section is incorporated herein by reference.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See the section entitled "Securities Beneficially Owned by Certain Persons"
appearing in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on September 9, 1996, which section is incorporated
herein by reference.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See the section entitled "Certain Relationships and Related Transactions"
appearing in the Company's Proxy Statement for the Annual Meeting of
Stockholders to be held on September 9, 1996, which section is incorporated
herein by reference.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Index to Financial Statements
The financial statements filed as part of this report are listed on
the index appearing on page 14.
2. Index to Financial Statement Schedules
The following financial statement schedule is filed as part of this report
(page references are to this report):
Schedule II Valuation and Qualifying Accounts (page 38)
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is presented in
the financial statements or notes thereto.
33
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
3. Exhibits
(3) Certificate of Incorporation and By-laws.
(a) Restated Certificate of Incorporation (Filed as Exhibit 3
(a) to Registration Statement on Form S-3 (Registration No.
33-63857))*.
(b) Amended and restated By-laws of the Corporation dated April
30, 1992 (Filed as Exhibit 3(b) to the Annual Report on Form
10-K for the year ended March 29, 1992)*.
(4) Instruments defining rights of security holders, including
indentures.
(a) Specimen Certificate of Common Stock (Filed as Exhibit 4(a)
to Registration Statement on Form S-3 (Registration No. 33-
63857))*.
(b) Frederick County Industrial Development Revenue Bond, Deed
of Trust, Loan Agreement and Guaranty and Indemnification
Agreement dated June 17, 1982 (Filed as Exhibit 4(g) to the
Registration Statement on Form S-8 filed July 29, 1982)*.
Bond and Loan Document Modification Agreement dated December
9, 1993 (Filed as Exhibit 4(c) to the Quarterly Report on
Form 10-Q for the quarter ended December 26, 1993)*.
(c) Amended and Restated Rights Agreement dated as of November
24, 1986, as amended and restated July 3, 1990 and as
further amended September 9, 1990 and September 24, 1990,
between Registrant and The First National Bank of Boston, as
Rights Agent (The July 3, 1990 restatement and the September
9, 1990 and September 24, 1990 amendments were filed as
Exhibit 4 to the Current Report on Form 8-K dated July 3,
1990 and Exhibits 4(a) and 4(b) to the Current Report on
Form 8-K dated September 18, 1990, respectively)*.
(d) Loan and Security Agreement dated December 15, 1993 between
Trans-Tech, Inc., and County Commissioners of Frederick
County (Filed as Exhibit 4(h) to the Quarterly Report on
Form 10-Q for the quarter ended July 3, 1994)*.
(e) Stock Purchase Warrant for 50,000 shares of the Registrant's
Common Stock issued to Silicon Valley Bank as of April 1,
1994 (Filed as Exhibit 4(i) to the Quarterly Report on Form
10-Q for the quarter ended July 3, 1994)*.
(f) Credit Agreement dated September 29, 1995 between Alpha
Industries, Inc., and Trans-Tech Inc. and Fleet Bank of
Massachusetts, N.A. and Silicon Valley Bank. (Filed as
Exhibit 4(j) to the Quarterly Report on Form 10-Q for the
quarter ended October 1, 1995)* and amended and restated
promissory notes dated as of October 31, 1995 (Filed as
Exhibit 4(f) to the Quarterly Report on Form 10-Q for the
quarter ended December 31, 1995)*.
34
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
(10) Material Contracts.
(a) Alpha Industries, Inc., 1986 Long-Term Incentive Plan as
amended (Filed as Exhibit 10(a) to the Quarterly Report on
Form 10-Q for the quarter ended October 2, 1994)*. (1)
(b) Alpha Industries, Inc., Employee Stock Purchase Plan as
amended October 22, 1992 (Filed as Exhibit 10(b) to the
Annual Report on Form 10-K for the fiscal year ended March
28, 1993)* and amended August 22, 1995. (1)
(c) SERP Trust Agreement between the Registrant and the First
National Bank of Boston as Trustee dated April 8, 1991
(Filed as Exhibit 10(c) to the Annual Report on Form 10-K
for the fiscal year ended March 31, 1991)*. (1)
(d) Digital Business Agreement between Digital Equipment
Corporation and Registrant dated April 2, 1990. Master Lease
Addendum (Ref. No. 6260) to Digital Business Agreement No.
3511900 between Digital Equipment Corporation and Registrant
dated April 2, 1990 (Filed as Exhibit 10(g) to the Annual
Report on Form 10-K for the fiscal year ended March 29,
1992)*.
(e) Alpha Industries, Inc., Long-Term Compensation Plan dated
September 24, 1990 (Filed as Exhibit 10(i) to the Annual
Report on Form 10-K for the fiscal year ended March 29,
1992)*; amended March 28, 1991 (Filed as Exhibit 10 (a) to
the Quarterly Report on Form 10-Q for the quarter ended June
27, 1993)* and as further amended October 27, 1994 (Filed as
Exhibit 10(f) to the Annual Report on Form 10-K for the
fiscal year ended April 2, 1995)*. (1)
(f) Master Equipment Lease Agreement between AT&T Commercial
Finance Corporation and the Registrant dated June 19, 1992
(Filed as Exhibit 10(j) to the Annual Report on Form 10-K
for the fiscal year ended March 28, 1993)*.
(g) Employment Agreement dated October 1, 1990 between the
Registrant and Martin J. Reid, as amended March 26, 1992 and
amended January 19, 1993 (Filed as Exhibit 10(k) to the
Annual Report on Form 10-K for the fiscal year ended March
28, 1993)* and amended August 10, 1993 (Filed as Exhibit
10(j) to the Quarterly Report on Form 10-Q for the quarter
ended July 3, 1994)*. (1)
(h) Employment Agreement dated October 1, 1990 between the
Registrant and George S. Kariotis, as amended May 15, 1991
and amended January 22, 1993 (Filed as Exhibit 10(l) to the
Annual Report on Form 10-K for the fiscal year ended March
28, 1993)* and amended August 10, 1993 (Filed as Exhibit
10(k) to the Quarterly Report on Form 10-Q for the quarter
ended July 3, 1994)*. (1)
(i) Employment Agreement dated October 1, 1990 between the
Registrant and Patrick Daniel Gallagher, as amended March
24, 1992 and amended by Second Amendment dated September 29,
1992 and Third Amendment dated January 20, 1993 (Filed as
Exhibit 10(m) to the Annual Report on Form 10-K for the
fiscal year ended March 28, 1993)* and Fourth Amendment
dated August 3, 1994 (Filed as Exhibit 10(l) to the
Quarterly Report on Form 10-Q for the quarter ended October
2, 1994)*. (1)
35
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
(j) Employment Agreement dated April 28, 1994 between the
Registrant and Joseph J. Alberici. (Filed as Exhibit 10(o)
to the Annual Report on Form 10-K for the fiscal year ended
April 3, 1994)*; and further amended August 3, 1994 (Filed
as Exhibit 10(n) to the Quarterly Report on Form 10-Q for
the quarter ended October 2, 1994)*. (1)
(k) Consulting Agreement dated August 13, 1992 between the
Registrant and Sidney Topol. (Filed as Exhibit 10(p) to the
Annual Report on Form 10-K for the fiscal year ended April
3, 1994)*. (1)
(l) Employment Agreement dated August 3, 1994 between the
Registrant and Thomas C. Leonard (Filed as Exhibit 10(p) to
the Quarterly Report on Form 10-Q for the quarter ended
October 2, 1994)*. (1)
(m) Master Lease Agreement between Comdisco, Inc. and the
Registrant dated September 16, 1994 (Filed as Exhibit 10(q)
to the Quarterly Report on Form 10-Q for the quarter ended
October 2, 1994)*.
(n) Alpha Industries, Inc., 1994 Non-Qualified Stock Option Plan
for Non-Employee Directors (Filed as Exhibit 10(r) to the
Quarterly Report on Form 10-Q for the quarter ended October
2, 1994)*. (1)
(o) Alpha Industries Executive Compensation Plan dated January
1, 1995 and Trust for the Alpha Industries Executive
Compensation Plan dated January 3, 1995 (Filed as Exhibit
10(p) to the Annual Report on Form 10-K for the fiscal year
ended April 2, 1995)*. (1)
(p) Letter of Employment dated January 24, 1995 between the
Registrant and David J. Aldrich (Filed as Exhibit 10(q) to
the Annual Report on Form 10-K for the fiscal year ended
April 2, 1995)*. (1)
(q) Alpha Industries, Inc. Savings and Retirement Plan dated
March 31, 1995 (Filed as Exhibit 10(r) to the Annual Report
on Form 10-K for the fiscal year ended April 2, 1995)*. (1)
(11) Statement re computation of per share earnings.
(21) Subsidiaries of the Registrant
(23) Consent of Independent Auditors.
(27) Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and
Exchange Commission during the fiscal quarter ended March
31, 1996.
_______________
*Not filed herewith. In accordance with Rule 12b-32 promulgated pursuant to the
Securities Exchange Act of 1934, as amended, reference is hereby made to
documents previously filed with the Commission, which are incorporated by
reference herein.
(1) Management Contracts.
36
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
ALPHA INDUSTRIES, INC.
(REGISTRANT)
By: /s/ MARTIN J. REID
------------------------------
Martin J. Reid, President
Date: June 21, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on June 21, 1996.
SIGNATURE AND TITLE SIGNATURE AND TITLE
- ------------------- -------------------
/s/ GEORGE S. KARIOTIS /s/ ARTHUR PAPPAS
- ------------------------------ ----------------------------
George S. Kariotis Arthur Pappas
Chairman of the Board Director
/s/ MARTIN J. REID /s/ RAYMOND SHAMIE
- ------------------------------ ----------------------------
Martin J. Reid Raymond Shamie
Chief Executive Officer Director
President and Director
/s/ DAVID J. ALDRICH /s/ SIDNEY TOPOL
- ------------------------------ ----------------------------
David J. Aldrich Sidney Topol
Chief Financial Officer Director
Principal Financial Officer
/s/ PAUL E. VINCENT /s/ CHARLES A. ZRAKET
- ------------------------------ ----------------------------
Paul E. Vincent Charles A. Zraket
Controller Director
Chief Accounting Officer
37
ALPHA INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(In thousands)
CHARGED
BALANCE AT TO COSTS BALANCE AT
BEGINNING AND END OF
DESCRIPTION OF YEAR EXPENSES DEDUCTIONS YEAR
- -------------------------------------------------------------------------------------------------------------
YEAR ENDED MARCH 31, 1996
Allowance for doubtful accounts.............. $ 783 $ 60 $ 209 $ 634
Allowance for estimated losses on contracts.. $ 117 $ - $ 93 $ 24
YEAR ENDED APRIL 2, 1995
Allowance for doubtful accounts.............. $ 945 $ 60 $ 222 $ 783
Allowance for estimated losses on contracts.. $ 593 $ - $ 476 $ 117
YEAR ENDED APRIL 3, 1994
Allowance for doubtful accounts.............. $ 293 $ 663 $ 11 $ 945
Allowance for estimated losses on contracts.. $ 448 $ 145 $ - $ 593
- ---------------------------------------------------------------------------------------------------------------
38